Data Center Real Estate Propelled by Remote Work: CBRE

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Consequences of COVID-19 bolstered data centers in the first half of 2020, making the sector one of commercial real estate’s most durable amid the pandemic, according to CBRE’s latest North American Data Center Trends Report.

The coronavirus-related increase in remote work as well as the rise in streaming content viewership left data centers in the U.S. and Canada in a strong position, appearing practically impervious to the detrimental impacts of the pandemic and the recession.

READ ALSO: North American Data Centers Still Thriving

The Top 10 most active markets in North America—Northern Virginia, Toronto, Central Washington, Dallas-Fort Worth, Atlanta, Silicon Valley, Chicago, Phoenix, Austin/San Antonio and Montreal—all recorded positive net absorption in the first six months of the year. Northern Virginia led the way with 92.3 MW of absorption and Montreal concluded the list with 5.5 MW.

“The continued momentum in the space across the majority of the markets stood out to me,” Pat Lynch, senior managing director with CBRE’s Data Center Solutions business line, told Commercial Property Executive. “We observed this in the course of our daily work with clients, but to see it reflected in the stats validates the robust nature of the data center business and the growing importance of this industry to our overall economy.”

Of the seven wholesale primary markets in the U.S.—Northern Virginia, Dallas-Fort Worth, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta—all but Northern Virginia recorded a year-over-year decrease in average vacancy rate. Phoenix saw the largest decrease in vacancies, with a 410-basis-point drop that pushed the figure down to 8 percent. Silicon Valley, which logged a 60-basis-point drop, had the lowest vacancy rate of the group, at just 4.8 percent.

Here a data center, there a data center

During the first half of 2020, data center inventory in the seven primary U.S. markets increased by 131 MW, representing a 5 percent growth in supply for a total overall market footprint of 2.7 GW. Notable deliveries included Equinix’s DA11, a $142 million facility in Dallas with 72,000 square feet of collocation space. As for new development, 373.6 MW of capacity was under construction across the primary markets, with the majority of the building activity having been deemed essential. Again, Northern Virginia was at the forefront with 239 MW underway. Additionally, as data center REITs continue to outperform other public real estate securities this year, new investors have taken an interest in the data center sector, which will likely contribute to the increase in development activity. However, the market appears primed to continue to absorb new product.

“Of course, there is a threat of over development in any sector. That said, I am less concerned about the new data center product in high-demand markets, as I believe the space that’s more at risk is older assets that are generally smaller in size and are under-powered and under-cooled for today’s data center demand,” Lynch noted. “New supply at scale is likely to be an alternative to organizations currently occupying some of this more dated supply.”

Demand overflow

While CBRE’s new report focuses on North America, the firm is active in the data center sector across the world and forecasts market expansion beyond U.S. and Canadian borders as well. “While the growth in North America remains strong, we are anticipating higher percentage growth in other global markets, such as Asia Pacific and Latin America,” Lynch told CPE. “The existing supply is much smaller in these parts of the world while the demand and need for data centers is growing at a faster rate.”

Read the full report on CBRE’s website.